There’s no word on a bidder for Silicon Valley Bank (or the rest of SVB Financial), but regulators have decided that depositors will be fine.
From the Federal Reserve, the FDIC and the Treasury there are:
Today we are taking decisive action to protect the US economy by strengthening public confidence in our banking system. This step will ensure that the US banking system continues to play an important role in protecting deposits and providing access to credit for households and businesses in a way that promotes strong and sustainable economic growth.
After receiving recommendations from the FDIC and Federal Reserve boards, and in consultation with the President, Secretary Yellen approved an action allowing the FDIC to complete the resolution of Silicon Valley Bank, Santa Clara, California, in a manner that protects all depositors. . Depositors will have access to all their money starting on March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers.
We also announced a similar systemic risk exemption for Signature Bank, New York, New York, which was closed today by state chartering authorities. All depositors of this institution will be made whole. As per the resolution of Silicon Valley Bank, no loss will be borne by the taxpayer.
Shareholders and holders of certain unsecured debts will not be protected. Senior management has also been removed. Any loss to the Deposit Insurance Fund to support uninsured deposits will be reimbursed by a special assessment on the banks, as required by law.
Finally, the Federal Reserve Board on Sunday announced it will provide additional funding to eligible depository institutions to help ensure banks have the ability to meet the needs of all depositors.
The important point here is this: the US will bail out all Silicon Valley Bank depositors, both insured and uninsured (i.e. over $250,000). Regulators will not cover losses from “certain uninsured debt holders”, although uninsured depositors are usually classified as [EDIT: senior unsecured] creditor**. ¯\_ (ツ)_/¯ Point to [@]Jason, we think. The shareholders will be zero, we think.
The same goes for depositors of Signature Bank in New York, which is also dead. Like Silvergate, they have made part of their business to be crypto-friendly, but they also have a lot of commercial properties.
U.S. banks must chip in to make up for shortfalls in Deposit Insurance Funds that may occur after the FDIC covers initial and/or crypto deposits.
Yes! Let’s hear from Twitter:
disappearance
Banks will also get funding to “meet the needs of all depositors”, perhaps companies will not race to take uninsured deposits from their current favorite banks and put them into new ones.
The Fed issued a separate statement that provided more details about the program. It’s called the Bank Term Funding Program, or BTFP (not to be confused with BTFD). With our emphasis:
Additional funding will be available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions that pledge US Treasuries, agency debt. and mortgage-backed securities, and other qualifying assets as collateral. The asset will be valued at par. The BTFP will serve as an additional source of liquidity to high-quality securities, eliminating the need for institutions to sell these securities quickly in times of stress.
With the approval of the Treasury Secretary, the Treasury Department will provide up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate the need to withdraw these backstop funds.
After receiving recommendations from the board of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, after consultation with the President, approved the action for the FDIC to complete the resolution of Silicon Valley Bank and Signature Bank in a manner that protects all depositors, insured and those who not insured. These actions will reduce stress on the financial system, support financial stability and reduce any impact on businesses, households, taxpayers, and the wider economy.
The board closely monitors developments in the financial markets. The capital and liquidity position of the US banking system is strong and the US financial system is resilient.
Depository institutions can obtain liquidity from various securities through the discount window, which remains open and available. In addition, the discount window will apply the same margin used for BTFP-eligible securities, increasing the value that can be borrowed in the window.
No haircut, no master. And more importantly, there is no loss from the rate increase!
Find the term sheet here.
US equity market futures rose more than half of one percent in pixels.
* We may update this post periodically with new news
**We also mixed up the uninsured depositor point in the US cover structure and regret that mistake (thanks to the shout out commenter)